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The Stock Market April 2020

Stock Market This Week

We have been saying for quite some time the trend to passive investing has been draining liquidity from the stock market, and yes, several factors are contributing to that drain. Still, no one seems to be concerned about this negative impact of passive investing. Yet the more money that gets locked into long term buying and holding of index funds, the less there is left to support the trading of stocks in the open stock market. The movement of large institutional investors into private equity and venture capital investing also aggravates this liquidity drain.

The coronavirus COVID-19 has generated an explosion of volatility as investors rush for the exit door, but rather than complaining about this rapid escalation of volatility, and viewing it as Wallstreet does as a measure of risk, we should work to find ways to turn this volatility into a profit-making opportunity, and take Warren Buffett’s words to heart when he says that rather than equating volatility with risk, we should view it as our friend. It is very easy to see what he means in today’s stock market as the small and midcap stocks get creamed daily as the public raises cash. We see movements both up and down of 5% to 10% in individual stocks.

The selling appears very indiscriminate, and many profitable and well-managed companies have seen the stock price declines of 50-70% from the stock market high on February 19, 2020. This presents a buying opportunity, and even if we have not yet seen the bottom, there are many attractive prices currently available.

It is, as always, a selective opportunity as some of the stocks that have been struck down may not recover. As always, when we have a bear market of this magnitude, it is likely to change the leadership going forward, and the stocks that have been leading the stock market in the last bull market will not lead the next.

I guess with the stock market up 31% last year, we should not have been shocked that we were due for a correction, but the source and speed of the correction have been breathtaking. The prolonged bull market had introduced a good deal of speculation needed correction, so now that the tide has gone out, we are quickly finding who has been swimming naked.

The long period of very low interest rates has encouraged the accumulation of a large amount of debt in specific areas of the stock market, and now these excesses will be corrected. In the energy sector, the shale producers have been given access to large amounts of debt to fuel their expansion. With oil prices below $25 a barrel, most of these producers will be losing money, and it the prices stay this low for an extended period, it will lead to bankruptcies and consolidations.

It is to try soon to predict an end to the carnage. Still, the recent governmental $2 trillion of fiscal stimulus and 1.5 billion in monetary stimulation by the Fed, together with the current budget deficit of $1 billion should be enough public sector spending to fill a huge hole in the private sector spending.

04/04/2020



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Blog Archive

2020

  • The Stock Market

2019

  • Behavioral Investing

2018

  • Trumped
  • Warren Buffett vs Wall Street
  • Globalism, 1982-2000 Bull Market

2017

  • Volatility Underlying Calm Market
  • What’s new with CB&I?
  • Passive Investing
  • Economic Cycles
  • Current Stock Market 2017 Comment

2016

  • Global Plastics Summit Highlights
  • Value Investing vs Index Investing
  • How to Play an Index Bubble
  • Successful Investors
  • Is the Market Overvalued?
  • Operating Earnings
  • Article by investment manager in Bay Hill Living
  • Building Foundation

2015

  • 3G Culture – Dream Big
  • Myopic Loss Aversion
  • CBI Nuclear Energy
  • St Joe Company
  • What’s in a Word? Plastics.
  • Are Bonds Safer Than Stocks?

2014

  • Chicago Bridge and Iron
  • CAMEX 2014
  • Global Economy October 2014
  • Fluor Corporation
  • Interesting Quotes from Daily Journal Annual Meeting
  • The Daily Journal Annual Meeting
  • Albemarle Corporation
  • Triumph Group
  • The American Energy Revolution
  • Singapore

2013

  • St Joe Company Update
  • Hedge Fund Managers
  • Triumph Group Inc.
  • Bitter Brew
  • An Antifragile Portfolio

2012

  • Leucadia National Corporation
  • This Time it is Different
  • Successful traders psychology
  • St Joe Company
  • Learning from Pain

2011

  • Long Cycles – Part II
  • Long Cycle
  • Nasty Month for Market
  • Make a Buck with Fortescue Metals Group
  • Berkshire Hathaway Look Through Earnings
  • St Joe Company Inc
  • Successful Investment Management
  • A Look Into Latin American Market
  • The Mother of all Quarters
  • 2010 Investment year results

2010

  • Fault Lines
  • US Market 2010
  • Berkshire Hathaway Third Quarter 2010
  • The Stock Market 2010
  • Berkshire Hathaway Second Quarter 2010
  • Berkshire Hathaway Performance
  • Long Term Greedy
  • Goldman Sachs
  • Berkadia and Leucadia
  • USG corporation
  • Berkshire Hathaway 2009 2010
  • Why Capitalism Works

2009

  • The Lords of Finance
  • The $44 Billion Dollar Train Set
  • Berkshire Hathaway 3rd Quarter 2009
  • Career Risk for Investment Manager
  • Berkshire Hathaway financial statements
  • Berkshire Hathaway Preferred Stock
  • Moral Hazard
  • Credit Default Swap
  • The Shadow Banking System
  • Learning Things the Hard Way
  • Our C-System
  • 2008 Investment results

2008

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  • Bear Markets
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  • Orange sheets – Money is doing better
  • Inflation Not The Problem
  • Tipping Point
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  • Western Refining Inc
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2007

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2006

  • New Investment Stocks
  • Equitas
  • Berkshire Hathaway Third Quarter 2006
  • Hurricane Synergy
  • Berkshire Hathaway Second Quarter 2006
  • Fat Pitch
  • Perfectly Obvious
  • Berkshire Hathaway Growth Rate
  • Berkshire Hathaway First Quarter 2006
  • Berkshire Hathaway Annual Report 2006
  • Inflation Is
  • 2005 Investment year results

2005

  • Exogenous Events
  • The Easy Money
  • Look-Through Earnings
  • High-Risk Mortgages
  • Unintended Consequences
  • Rydex Ursa Fund
  • Warren Buffett Premium
  • Private Equity
  • Latticework Mental Models
  • Buffett’s Lackluster Performance
  • 2004 Investment year results
  • Professor Smith’s Second Bubble

2004

  • Hedging Currency Disaster
  • Risk Assessment
  • Too Many Bears
  • The Chinese Century?
  • Patterned Irrationality
  • Timber
  • Costco’s Cash
  • Physics Envy by Charlie Munger
  • Asset Allocation Berkshire Hathaway
  • The Balance of Payments
  • 2003 Investment year results

2003

  • Hedge Funds
  • The trade deficit is not debt
  • Secular Bear Market
  • Which Index Funds?
  • A Different Drummer
  • Costco’s Float
  • The Power of Float
  • Berkshire Hathaway Annual Meeting 2003
  • Psychology of Human Misjudgment
  • Sitting on the Sidelines
  • Berkshire Hathaway intrinsic value
  • 2002 Investment year results

2002

  • Insurance company Moats
  • Bond Bubble
  • Berkshire Hathaway Cash Flow 2002
  • Behavioral Economics
  • The Bear Market 2002
  • Greenspan Put
  • Second Quarter Cash Flow at Berkshire Hathaway
  • Berkshire Hathaway Annual Meeting 2002
  • Red Wire – Green Wire
  • Stupid FED Tricks
  • The Bottom Line
  • 2001 Investment year results

2001

  • Don’t Fight the FED
  • Buy and Hold? – It all Depends
  • Ben Laden and Berkshire Hathaway
  • The Dinosaurs Dance
  • Costco Moat
  • Bubble Watching
  • Sit on your Ass investing
  • Berkshire Hathaway Annual Meeting 2001
  • Carnival Cruise Lines
  • 450000 Square Ft Furniture Store
  • Lunch Money Indicators – Annual report
  • Other People’s Money

2000

  • Bear Tracks
  • Build It and Money Will Come
  • Efficient Stock Market
  • Style Drift
  • Lunch Money Indicators – Options
  • Identifying Problems
  • Small Retail Stocks
  • Charlie Munger comments
  • Big Al and the Bubble Machine
  • Berkshire Hathaway Cheap
  • Index Funds
  • 16 rules for investment success
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